Kors: Less Discounting Leads to Happier Analysts

As handbag sales fall, Michael Kors is focused on new areas of growth such as men’s products.
Illustration:
Jacopo Raule/Getty Images for Michael Kors

By

Emily Bary

Sept. 19, 2017 12:30 p.m. ET

Michael Kors is trying to follow in Coach’s footsteps, and Wall Street is slowly getting more optimistic about the company’s transformation.

Like Coach, Kors is clamping down on excessive promotions, while growing the business beyond handbags. Kors agreed to buy Jimmy Choo in July. Meanwhile, the company is increasingly focused on men’s items. The efforts earned Kors a new fan on Tuesday, as Oppenheimer analyst Anna Andreeva upgraded the stock from Neutral to Outperform, indicating that she thinks that shares will outpace the overall market.

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When a company cuts back on promotional activity, the move tends to cause short-term pain because overall sales fall, too. But Andreeva is encouraged by the early results of Kors’ newfound pricing discipline. In the latest quarter, the company saw a rare boost in the average price of products sold. Margins, a measure of profitability, “seem to be finding a bottom,” Andreeva writes.

Though sales of handbags and small leather goods are falling, smaller categories like shoes, men’s items, and “ready-to-wear” clothing are all showing growth. In particular, the men’s line has real potential to get the company back on track. Andreeva predicts that the men’s line will generate more than $200 million in sales by early 2020, double her estimate for the beginning of next year. Even with that strong growth, though, Kors’ men’s business would be a quarter the size of Coach’s, leaving plenty more room for improvement.

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